Modern Monetary theory is John Maybard Keynes taken to the Nth level. Money printing can cure all Ills. This was pushed by Paul Krugman especially in his visit to Japan.
It was opposed by Hayak, no not Selma Hayak, Friedrich Hayak. This guy:
Japan now has 200% debt to GDP, worse than America’s 130%.
So what’s happening in Japan is interesting. The demographic decline results in populations in the outer towns drying up. Like a river receding. Enterprising Americans buy up the beautiful wood hand made vintage houses and live happily. The japanese are hard working, the change in reproduction does NOT change their base genetic makup. GDP goes down, making the debt repayment more difficult but it doesn’t result in total poverty. Was Krugman right>?
er, not so fast. The same thing is happening in America, the new higher tax burdens (+ feminism) has reduced the productive people. Now as these people reproduction pulls back, it is filled by hyper-reproducing people who rather than contribute, are living off welfare and society programs. People on disability, illegal alien invaders, and welfare / disability abusive blacks and Hispanics. (the race is only a proxy for whats happening in population dynamics, NOT a condemnation of the race itself).
So in the USA, going down the Paul Krugman Keynesianism of spend spend spend to try to balance out the business cycle, leading to debt, seemingly has no issue. Except, with the population dynamic changing on top of this, the tax revenue will begin to fall.
Hayak says too low interest rates lead to mal-investment and easy credit again leading to more bad investments. But the FED is actually doing something much worse. They are now buying up Junk bonds. This has created a NEW MARKET to issue Junk bonds. Recently Herbalife – the pyramid scheming company – issued 100 million. The FED is doing this to try to hide the criminal and bad investments that many banks made, and now they extend the largess to companies as well.
The problem is these are inflated balloons, empty investments, that can never be sold lest they show the criminal crap they are made of.
There is another issue as well in that all this money goes to fatcat salaries of bankers and ceos and their ilk. and not for producing a quality product, no, just the opposite, it’s rewarding junk companies with lush cash.
So on the FEDs balance sheet they sit, perhaps forever, a black hole of investment. Companies go on to practice reckless principles and even criminal horrors, knowing that the next contraction will simply require the FED to jump in and hand them cash, and take the venom bonds and loans off their hands. How long can this go on? It’s like a weight against our total currency value. Eventually it looks too ugly and people lose confidence.
Hayak’s book – the Constitution of Liberty – makes clear that these kinds of interventions destroys entrepreneurship and rational markets ultimately in a loss of freedom. Herbalife prospers, but the truly brilliant guy in his garage can’t get money.
Hayak foresaw the Demothugs and their GibsMeThat political communism – “The “man of action,” Hayek wrote, “will be able to obtain the support of all the docile and gullible, who have no strong convictions of their own but are prepared to accept a ready-made system of values if it is only drummed into their ears sufficiently loudly and frequently.”
One interesting point of Keynes is that he did believe that sufficient money supply was necessary for a nation to prosper. The FED is acting in this mission. What they fail to understand, and what is made clear immediatly via a chart of the M2 money supply which is at great depression levels of non circulation, is that somehow the money is getting vacuumed up before it reaches circulation. And this is where financialization comes in.
This is the two pump system. The first pump system – issuing debt spending to governments – Seemingly money is put into the system, but it is made only accessible to government wasteful programs and large corporations. Good if you are one of our 17 intelligence agencies or a war product company, not so good for the rest of us. The big corporations buy back stock and the money gets “sealed” into financial instruments. The second pump – the fed buying bonds, is supposed to exchange bonds for money further increasing money supply, but again they get trapped in financialization products. None of this gets to MAIN STREET. So we see M2 crash. Money isn’t moving. Very dangerous. Generally buying up bonds simply raises the prices in the bond markets and again never gets out of wall street. Only banks directly investing to entrepreneurs would help. They do very little of that today. And now the FED is even buying ETFs to directly try to prop up the stock market. Another thing to sit on their balance sheet and not circulate while the wealthy class will do better and avoid a crash.
Finally TAXES have to come in and vacuum up PROFIT out of MAIN STREET lest inflation run away. By keeping the masses poor and under heel, more money can be issued which gets swallowed into the 0.001 % ruling class of plutarchs and there is not inflationary pressure to stop it. to a point.
Except we have issued SO MUCH and have so much debt (26T) that inflation is coming. Like “winter is coming” no one seems to believe in the monster that is awakening. The crash will impoverish main street and many of the investors, but the plutocrats will most likely just leave to new zealand.
So why can’t we look to the lessons of post ww1 germany or Zimbaby and learn that money printing doesn’t produce wealth. Krugman is right, only until he is wrong, but that reckoning day will come at the cost of starvation of millions. So until then he prances around and goes neeenaneeenah i’m right but… the day he is wrong look out. It’s going to be like hell made manifest on earth. And then at least we will finally know Hayak was right.